Digitex Inc. factored $50,000 of its accounts receivable with recourse. The factor retained 8% for sales adjustments and charged $3,000 as a financing fee. Estimated and actual amounts are as follows: $$\begin{array} { | l | l | }
\hline \text { Sales adjustments } & \$ 2,500 \
\hline \text { Uncollectible accounts } & 500 \
\hline
\end{array}$$ Assume the transfer is recorded as a sale by Digitex. What is the loss or financing expense to be recognized on the transfer?

Question

Digitex Inc. factored $50,000 of its accounts receivable with recourse. The factor retained 8% for sales adjustments and charged $3,000 as a financing fee. Estimated and actual amounts are as follows: $$\begin{array} { | l | l | } 
\hline \text { Sales adjustments } & \$ 2,500 \
\hline \text { Uncollectible accounts } & 500 \
\hline
\end{array}$$ Assume the transfer is recorded as a sale by Digitex. What is the loss or financing expense to be recognized on the transfer?

Quizplus · Accepted Answer

The loss or financing expense recognized on the transfer is the financing fee of $3,000. The sales adjustments and uncollectible accounts do not affect the loss or financing expense directly since the transfer is recorded as a sale, and these amounts are handled by the factor.

Digitex Inc Sales adjustments $2,500 Uncollectible accounts 500\begin{array} { | l | l | } \hline \text { Sales adjustments } & \$ 2,500 \\\hline \text { Uncollectible accounts } & 500 \\\hline\end{array} Sales adjustments Uncollectible accounts ​$2,500500​​

Digitex Inc $\begin{array} { | l | l | } \hline \text { Sales adjustments } & \$ 2,500 \\\hline \text { Uncollectible accounts } & 500 \\\hline\end{array}$